1. Field of the Invention
The present invention relates to the field of payment processing and more particularly to debit card and credit card processing of retail transactions.
2. Description of the Related Art
For centuries, the retail sale of goods and services has permitted not just payment in hard currency, but also payment by way of a promise to provide hard currency. Raw forms of credit result from a mere promise—an account or “tab”. Modern sophisticated forms of credit include credit accounts, such as those represented by a credit card. More recent advancements in payments systems include the notion of a debit account or debit account. Even more recent advancements in payment systems process gift cards and other accounts of stored value. Each of credit cards, debit cards and gift cards require the coordination of an intermediary merchant account in which credit and debit card payments can be accepted by a merchant, and a payment processing service managing the settlement of each transaction.
Conventional credit card transactions are sent electronically to merchant processing banks for authorization, capture and deposit. Various methods exist for presenting a credit card sale to the payment processor for processing. In all circumstances the account number is read by “swiping” a magnetic strip of a credit or debit card through a credit card terminal/reader, by communicating with a computer chip embedded in a credit or debit card, or by manual methods including providing the number manually through a Web site or interactive voice response system.
Most payment transactions conducted in the world of brick and mortar sales utilize a credit card terminal. Generally, a credit card terminal is a dedicated piece of equipment often linked to a point of sale (POS) system. When a credit card or debit card is processed through the terminal, either through swiping or manual keying, the terminal establishes a communicative connection with a specified payment processing system to verify the credit card and authorize the transaction. The transaction then can be stored in the terminal until a “polling window” opens. At that point, stored transactions can be uploaded resulting in the transfer of funds directly to a specified merchant bank.
The use of a merchant account in payment processing is not with cost—literally. Specifically, the use of a merchant account can result in the occurrence of a variety of fees, some periodic, and others charged on a per-item or percentage basis. Some fees are determined by the provider of the merchant account. Other fees are passed through the merchant account provider to the credit card issuing bank according to a schedule of rates called interchange fees. Interchange fees generally vary depending on card type and the circumstances of the transaction. For example, if a transaction originates by swiping a card through a credit card terminal the fee will be different than would be the case if the account information had been provided manually. In many cases, fees are established in order to minimize fraud.
At present, credit and debit card processing services deliver a generic offering to merchants. The generic offering includes a pricing scheme generally known as the “merchant discount rate”. Credit and debit card processors typically base the merchant discount rate upon the interchange rate, which is the base rate published by the card associations including Mastercard™ (Mastercard is a registered trademark of Mastercard International Incorporated of Purchase, N.Y.) and Visa™ (Visa is a registered trademark of Visa Inc. of San Francisco, Calif.). The card associations base the interchange rates upon a variety of parameters including the type of card being used (regular, gold, loyalty, corporate, domestic, international, amongst others) in addition to the category into which the merchant belongs. Additionally, credit transactions are priced different from debit card transactions, and debit cards include two different categories: PIN or signature based.